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Regional Outlook

Camera-ready art of "Regional Outlook": (1,255Kb) PDF file - PDF help or hard copy) In Focus This Quarter The The U.S. banking industry’s strong performance in the face of subpar economic growth since early 2002 is remarkable. Together, the banking and thrift industries’ net income reached over $105 billion in 2002, the first time annual earnings have topped the $100 billion mark. Despite the strong performance during 2002, some issues bear watching. These include continued weakness in corporate credit quality, although conditions are generally improving as a result of aggressive bad debt workouts by large insured institutions; concerns over a protracted slump in commercial real estate markets, which might eventually lead to increased losses; subprime consumer lending, given increased household leverage and the ongoing extension of unsecured lending (especially credit card debt) to borrowers with less experience in managing credit; net interest margin compression; interest rate and funding risks related to the unusually low interest rate environment; exposure to market-sensitive, noninterest income sources; and the adequacy of internal audit and other controls against potential fraud. By Richard Austin, Senior Financial Economist Alan Puwalski, Senior Policy Analyst

Regional Perspectives
Atlanta--Revenue shortfalls and rising expenditures have contributed to deteriorating fiscal conditions among states in the Region. These developments may challenge the regional economy and pressure credit quality among insured institutions. Chicago--Concentrations in commercial real estate lending continued to rise among the Region’s insured institutions as market fundamentals in the larger metropolitan statistical areas weakened. Dallas--Despite a sluggish economy, insured institutions based in the Region report favorable conditions; however, some deterioration has occurred in the consumer loan portfolio. Rising debt levels may contribute to additional weakening in credit quality.		Kansas City--The number of newly chartered institutions has increased significantly in certain metropolitan areas during the past five years. These institutions performed well during the recent recession; however, continued economic weakness could pressure earnings and credit quality. New York--Many of the Region’s states face budget shortfalls, which may worsen in the coming fiscal year. Job losses in the financial sector have disproportionately hurt New York City and Boston. San Francisco--The Region’s travel sector remains vulnerable to a sluggish economic recovery and events abroad. Asset quality and earnings among insured institutions based in travel-dependent markets could deteriorate if weakness in this sector continues. By Staff of the Regional Operations Branch

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